If There Is an Increase in Foreign Financial Investment in the United

question 36

Multiple Choice

If there is an increase in foreign financial investment in the United States as the result of large U.S. budget deficits and attractive interest yields,

• A) fiscal policy will be more expansionary since there will be no crowding-out effect.
• B) fiscal policy will be more expansionary since U.S. residents will increase their savings, so they can repay the foreigners in the future.
• C) foreign exchange value of the dollar will depreciate, which will lead to an increase in net exports and aggregate demand.
• D) foreign exchange value of the dollar will appreciate, which will lead to a decrease in net exports and aggregate demand.

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Definitions:

Total Variable Cost

The sum of all variable costs associated with the production of a given level of output.

Total Fixed Cost

The sum of all costs required to produce any product or service that does not change with the level of output.

Average Fixed Costs

Average fixed costs are the total fixed costs of production divided by the quantity of output produced, which decreases as production increases.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one additional unit of a good varies as production volume changes.